*Chapter 3

Incomplete records
Prepared by: Mdm. Jeya Lachimi
Subject: Financial Accounting 2
*What is Incomplete records?
*Reasons for incomplete
records?
*Calculations of profit for the
year in the absence of proper
records with examples.

*CONTENTS
*What is incomplete records??

* a situation in which an organization is not using double-entry bookkeeping.

* transactions have been recorded on a single basis or part of the records of a

business have been destroyed / lost. It may also happen that the accounts of
a business have been prepared by an incompetent accountant.

* Under a single-entry system, it is possible to maintain a

cash-basis income statement, but not a balance sheet.
Fraudulent Behaviour
* Employees may deliberately
obfuscate or never record
certain transactions, so that
they can abscond with
company assets or record
excessive levels of
profitability.

* Reasons for Incomplete Records

Inadequate Systems
* There may be an inadequate
system of procedures and
supporting controls in place,
so that various business
transactions are never
recorded in the
accounting system.

* Reasons for Incomplete Records

Loss During Transition
* A company may not adequately
protect its old records when
moving to a new accounting
system, and irretrievably loses
some or all the old records.

* Reasons for Incomplete Records

*The two main instances in
which incomplete records can
be found are where:

• there are no records at all

• some records exist and

information is available to
calculate missing figures.
* No records at all
It is still possible to calculate a profit or loss
figure by using the fact that the profit of a
business must be represented by more assets.
We list and value the opening and closing net
assets, then calculate the profit as the
difference between the two:

* Profit = Closing net assets - Opening net assets

* Allowance must be made for proprietor's

drawings and extra capital introduced, so the
formula becomes:
Profit = Closing net assets - Opening net assets
+ Drawings - Capital introduced
*Incomplete records
This a more common scenario,
both in exam questions and in
practice. There are standard
techniques for calculating missing
figures:
*Opening capital
*Missing figures for sales and
purchases
*Missing figures for cash
*Opening capital
*We need to have the opening
capital of the business at the
beginning of a period to
provide a starting point - the
capital in the balance sheet
account. Questions will
usually give us a list of
opening assets and liabilities,
and we use this to arrive at
the opening capital.
* Missing figures for sales
and purchases
If we know the opening
and closing
receivables/debtors of a
business, and the cash
received from customers,
we can calculate sales.
All we need to do is set
up a sales ledger total
account (see Figure 1).

* If any three of these figures is known,

the fourth can be calculated.
*All we are doing here is
using the sales ledger
control account format, but
instead of proving the
accuracy of the sales ledger,
we are calculating what the
sales must have been in
order for the other figures
to be what they are. The
same technique may be
used to calculate credit
purchases. If the sales
figure is given, we can
calculate the cash received.
* There is another way to calculate sales,
purchases or stock figures, and that is to use
the trading account format. We normally set
up the trading account as (figures invented):

$ $
Sales 100,000
(-) Cost of sales
Opening inventory/stock 10,000
Purchases 78,000
closing inventory/stock 13,000 75,000
Gross profit 25,000
*Suppose the closing
inventory/stock has been
destroyed by fire, along
with all the inventory/stock
records. Then we wouldn't
have the closing
inventory/stock total to
include in our trading
account. However, we can
calculate it if we know the
gross profit percentage on
sales - or, of course, the
mark-up on cost of sales.
* In the example above, gross profit is 25% of
sales. If we are told this, we can insert the
gross profit of $25,000 and so calculate the
missing inventory/stock figure as a balancing
item. We can also find a missing purchases
figure, or even a missing sales figure.
* Suppose we are given:
* We are also told that gross profit percentage
on sales is 25%. If gross profit is 25% on sales,
cost of sales must be 75%. The sales total is
therefore:
$75,000 x 100/75 = $100,000.
* Whenever the gross profit percentage is given
in an incomplete records question, you know
that this technique is needed.
* Missing figures for cash
We may be given details of cash receipts and
payments plus details of opening and closing
balances, but with one figure missing, often
the proprietor's drawings. We can calculate the
missing figure by setting up a cash account to
find the balancing item required.
* Here are the incomplete records techniques:
*TIME FOR
TUTORIAL!

*THANK YOU